The state of New York’s top bank regulator, Adrienne Harris, wants banks to ensure they don’t leave communities of color behind as they limit their exposures to climate change.
Harris’ agency, the New York State Department of Financial Services, has been at the forefront of climate finance regulation in the U.S. and is due to come out later this year with guidance for the banks it oversees.
In an interview with American Banker, Harris said a key feature of the forthcoming guidance involves providing “clear instructions” that banks cannot curb their climate exposures by lending less to underserved communities. Such communities are more likely to be located in areas vulnerable to flooding and extreme weather events.
So banks would not be allowed to reduce their climate risk, for example, by pulling back on mortgage loans in Queens, which was hit hard by Hurricane Ida last year.
“We have called out that tension explicitly and said you cannot sacrifice your fair lending and equity obligations in order to mitigate climate risk,” Harris said in an interview. “I think that’s going to be a really novel thing for people to see.”
Department of Financial Services officials are working to finalize the proposed guidance this year. Harris said the document takes a data-driven approach to tackling climate risks and was subject to extensive engagement with climate experts and industry leaders.
The guidance will work in concert with climate regulations elsewhere, such as forthcoming actions by U.S. bank regulators and rules already in place in Europe for some foreign-owned banks that operate in New York.
“I really do want it to be a model that other states, other regulators, can adopt, regardless of blue, red, purple,” Harris said. “Because that’s really the end goal, is that we’re all working toward a more resilient financial system.”
The focus on underserved communities lines up with Harris’ vision to center the agency around “kitchen-table issues.”
Harris, a former Obama administration economic advisor who joined the state agency last year and is the first Black woman to lead it, said its consumer assistance unit helped people recover more than $99 million for complaints filed between September 2021 and August 2022. Harris has added staff to the unit, which handles consumer complaints, and she said the agency has been “advertising it much more.”
The Department of Financial Services has also won $33 million in restitution for consumers through enforcement actions against companies, up from $19 million a year earlier.
The agency is “refocusing” to take on more consumer-related investigations, in addition to anti-money laundering and cybersecurity violations that the agency has long been known for investigating, Harris said. Tackling those consumer cases is critical at a time that rising costs for food, rent and energy are squeezing New Yorkers’ budgets, Harris argued.
“Things are hard and are getting harder,” she said. “So whatever we can give back to New Yorkers, that’s what we should be oriented around.”
This year, the agency reached a settlement with Nationwide Life Insurance Company that includes $3.4 million in restitution for consumers relating to annuity replacements. It also reached an agreement that requires the insurer John Hancock to return $21.6 million to consumers following an investigation into long-term care insurance.
Harris also highlighted the agency’s move this year to freeze an automatic increase in check-cashing fees, which the agency has traditionally allowed to increase with inflation. Those fees had been due to rise substantially thanks to decades-high inflation levels.
The agency has since proposed a new fee structure that includes lower fees for cashing any public assistance checks. It allows the industry to request increases in its fees every five years starting in 2027.
The regulation of virtual currencies is another area of focus at DFS. The unit responsible for overseeing the industry issued guidance in April on blockchain analytics tools that virtual currency companies can use to monitor suspicious activity.
New York officials are also working on amendments to their cybersecurity regulations, which have been in place since 2017. Those regulations subsequently influenced cybersecurity rules in the U.S. and internationally.
“Five years in cybersecurity time is a long time,” Harris said, adding that the updates will improve companies’ resiliency. An early version of the proposal includes mandatory notifications within 24 hours for any cyber ransom payments, annual audits for larger companies and heightened expectations for corporate boards, according to a summary from the law firm Debevoise & Plimpton.
The agency has also made its mark on overdraft policies, laying out new guidance in July to limit what the agency called “unfair and deceptive” charges for consumers. Many large and regional banks have taken steps over the past year to curb their overdraft revenues, and three of them have eliminated overdraft charges entirely. Regulators at the Consumer Financial Protection Bureau have promised to crack down on the fees.
The DFS guidance prohibits three specific type of overdraft-related charges: fees that occur even when customers’ accounts show they have enough money at the time the transaction occurs; concurrent charges both for an overdraft and for transferring funds in an unsuccessful effort to avoid the overdraft; and multiple fees charged when consumers get declined more than once on the same transaction.
Harris said the agency did not take the approach of simply saying “overdraft is bad.” Rather, officials “took the time and looked at the data from our examinations” to give banks specific expectations to prevent consumer abuse.
The action was part of the agency’s mission to “make banking cheaper and more accessible for consumers,” Harris said.
Also on the agency’s agenda is increasing the industry’s use of a program that New York lawmakers put in place in 1998 to give banks incentives to open branches in underserved communities. The program last underwent a major review in 2009.
Depositories have only used the program 12 times since 2017, with two of those instances coming during Harris’ tenure. The latest occurrence is a new branch that Heritage Financial Credit Union is opening in Poughkeepsie, which marks the first time a credit union has participated.
“This is one example of a policy that can be updated to make it even more attractive,” Harris said, adding that “we want more institutions participating in this.”